Correlation Between Microsoft and Deckers Outdoor

Can any of the company-specific risk be diversified away by investing in both Microsoft and Deckers Outdoor at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Microsoft and Deckers Outdoor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and Deckers Outdoor, you can compare the effects of market volatilities on Microsoft and Deckers Outdoor and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Microsoft with a short position of Deckers Outdoor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Deckers Outdoor.

Diversification Opportunities for Microsoft and Deckers Outdoor

0.49

Correlation Coefficient

Microsoft  Deckers Outdoor

Very weak diversification

The 3 months correlation between Microsoft and Deckers is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Deckers Outdoor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deckers Outdoor and Microsoft is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Microsoft are associated (or correlated) with Deckers Outdoor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deckers Outdoor has no effect on the direction of Microsoft i.e., Microsoft and Deckers Outdoor go up and down completely randomly.

Pair Corralation between Microsoft and Deckers Outdoor

Given the investment horizon of 90 days Microsoft is expected to generate 20.48 times less return on investment than Deckers Outdoor. But when comparing it to its historical volatility, Microsoft is 1.39 times less risky than Deckers Outdoor. It trades about 0.01 of its potential returns per unit of risk. Deckers Outdoor is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  81,538  in Deckers Outdoor on February 14, 2024 and sell it today you would earn a total of  3,529  from holding Deckers Outdoor or generate 4.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Deckers Outdoor

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Deckers Outdoor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Deckers Outdoor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Deckers Outdoor is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Microsoft and Deckers Outdoor

The main advantage of trading using opposite Microsoft and Deckers Outdoor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Deckers Outdoor can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Deckers Outdoor will offset losses from the drop in Deckers Outdoor's long position.

The idea behind Microsoft and Deckers Outdoor pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Insider Screener module to find insiders across different sectors to evaluate their impact on performance.